More than two years after the shutdown of Zeek Rewards by the SEC, Plastic Cash International, a credit-card processor and would-be debit-card vendor for Zeek, said it has been “rendered insolvent as a result of the misconduct of [Rex Venture Group] and [Paul] Burks,” the operator of the Zeek scheme.

PCI also says its onetime attorney in California who advised the company on Zeek matters has been disbarred and that the attorney stole $800,000 in funds that originated in transactions it processed for Zeek.

Filings today by PCI identify the attorney as Scott Mehler. Details on the alleged Zeek-related theft were not immediately clear.

On Sept. 3, 2014, Judge Donald F. Miles of the California State Bar Court issued an order recommending Mehler’s disbarment to the California Supreme Court.

Filings in the case say Mehler misappropriated $1.4 million from two businessmen who sold their sheet-metal business to a company in Canada. In the papers, Mehler is accused of spending “all” the money entrusted to him, creating bogus screen shots to dupe the businessmen, ducking them for months and blaming his unresponsiveness to their demands for payment on mistakes with decimal points, miscalculations, a son who was ill, a wife who was out of town and an “injured dog.”

In November 2014, Zeek receiver Kenneth D. Bell asked for an order directing PCI to turn over more than $8.3 million that he believes are receivership assets. PCI now contends that it is insolvent, that it is a victim of Zeek and that its very business relationship with Zeek triggered a series of epic disasters that led to its demise.

Brian Newberry is the president, CEO and principal owner of PCI.

From a filing by PCI today (italics added):

Immediately upon discovering that RVG had been operating an alleged Ponzi Scheme, PCI directed PCI’s processing partner, without qualification, to honor all chargeback requests made by Customers, including those to whom monthly services had been rendered . . . To date, PCI has paid out at least $2,000,000 on Customer chargeback requests and related fees.

Severe fines and penalties have been imposed on PCI because PCI contracted with RVG, which has since been exposed for various fraudulent and unlawful practices. Such fines and penalties continue to accrue. To date, PCI has paid an aggregate of at least $1,100,000 in fines based directly on PCI having processed transactions related to RVG . . .

Based on the advice of PCI’s (now disbarred) attorney, Scott Mehler (“Mehler”), that the funds in dispute belonged to PCI and not RVG, PCI used the funds PCI received from processing monthly memberships that remained after payment of the aforementioned chargebacks, fees, fines and penalties in an attempt to mitigate the damages resulting from RVG’s conduct . . .

In addition to fines and legal fees, PCI and one of PCI’s principals, Brian Newberry, were themselves placed on the “MATCH List” based on the transactions processed for RVG . . . As a result, PCI’s processing partner, SecureNet, immediately ceased doing business with PCI altogether, thereby cutting PCI off from all sources of cash . . . Without any cash, PCI could not service the financial obligations imposed by contracts with other parties or otherwise meet operating expenses as they became due. PCI has asserted a Class 2 secured claim against the Estate, which claim is concurrently being pursued in accordance with the claims determination procedures established applicable to this SEC Enforcement Action, as ordered by this Court.